Govt seeks to amend contract labour law

NEW DELHI: It is a new idea to achieve the UPA’s elusive goal of inclusive growth while giving industry the hiring flexibility it needs. But the government’s own narrow interests are holding it up.

With a vast part of the workforce now employed on contract basis without any job security, the Centre wants to amend the Contract Labour Act of 1971 to ensure a fair deal for such workers.

The proposed amendment mandates that contract workers get the same wages, facilities and benefits as regular employees. So even if contract workers have no security of tenure, they would get better salaries with health cover and social security benefits under the Employees’ State Insurance Corporation and Employees’ Provident Fund, respectively.

The labour ministry believes this would be a very effective instrument to transfer wealth and achieve the UPA’s inclusive growth agenda.

“By one amendment, wages would increase,” labour secretary Prabhat Chaturvedi told ET. “The trade unions’ resistance to hiring contract workers will reduce and industry would get the flexibility it keeps asking for in hiring practices,” he said.

Though there is no official fix on how many of India’s 450 million-odd workers are employed on contract, such workers’ exploitation is being seen as one of the reasons for rising industrial unrest in recent times.
“Most contract workers are paid just 40% of regular wages with no social protection. To earn profit by exploiting labour isn’t desirable in a democratic country and welfare state,” Mr Chaturvedi said.

The worst manifestation of such unrest was seen when Graziano Transmission CEO LK Chaudury was murdered by a mob of workers two years ago, after he laid off a few contract labourers. A Cabinet note moved by the labour ministry to amend the 1971 law has called for urgent action to prevent such instances from spiralling into a national labour crisis.

Maruti Suzuki managing executive officer SY Siddiqui agrees that industry must provide social security benefits to contract workers as it will also entail some flexibility in hiring.

“More flexibility in hiring would certainly help industries where there are demand surges and labour needs to vary through a year,” he told ET.

But equity in compensation, Mr Siddiqui stressed, must depend on workers’ skills. “If two sets of workers are doing the same job, there must be fairness in pay. But someone who unloads goods into my factory can’t be paid the same as a shop-floor worker who ensures the quality of the final product,” he explained. Mr Siddiqui is a member of the industrial relations council at the Confederation of Indian Industry (CII).

“The law provides for paying at least the minimum wages to contract workers,” said another CII official. “Industry strives to pay a little more, where possible, but to pay the same wages as regular workers would be difficult,” he said.

While industry is sceptical about how these changes will be implemented, the government is in a tizzsy over the implications. Several ministries have called for a rethink as they rely heavily on contract workers. In many public sector firms, contract workers make up for over 70% of their staff. The government is one of the biggest users of contract labour, they have pointed out.

Noting such concerns, cabinet secretary KM Chandrashekhar has asked the labour ministry to evaluate the financial impact of the proposed changes on the Centre’s finances as well as the economy at large.

The VV Giri National Labour Institute is now grappling with the question and is expected to submit its report this month. Mr Chaturvedi categorically dismisses the prospect of exceptions being made for PSUs or government departments under the new law. But the final shape of the law could alter on the basis of the impact assessment underway.
Ironically, rules to give contract workers fair wages and benefits already exist under the 1971 law, but they aren’t implemented in letter or spirit.

It has been proposed that these norms be explicitly stated up front in the Act, instead of the rules. Principal employers and contractors would have to furnish challans to show every month’s wage bill and social security benefit payments for contract workers.

While industry appreciates the intent of protecting contract labour from the prevalent exploitation, it has operational concerns.

“In many industries, permanent employees are no longer hired for some roles, such as security guards,” said Deepak Gupta, executive director (tax and regulatory services) at PricewaterhouseCoopers. “So how do you determine the fair wages for them?” he asked.

Operational details could be ironed out. But as and when the proposed changes become law, it would constitute a significant reform in India’s archaic labour legislations that are out of sync with post-liberalisation industrial realities.

Firstly, it would take cognisance of the fact that contract labour is here to stay—something that trade unions have been refusing to accept for two decades. More importantly, the changes could set the stage for Indian industry to hire workers with more freedom and give Indian youth a chance to realise the country’s much-vaunted demographic dividend.